Outside editorial: Record income inequality is a growing threat to democracy

Posted: Tuesday, October 05, 2010

The following editorial first appeared in the St. Louis Post-Dispatch:

"With the middle class gone and the laborer condemned to remain a lifelong wage-earner ... all the conditions are ripe for a crowning class-conflict equaling in intensity and bitterness anything pictured by the most radical follower of Karl Marx."

Income inequality is at record levels in the United States, the Associated Press reported last week after crunching new numbers from the Census Bureau.

In fact, income inequality was only slightly greater in 2009 than it was in 2008. But the trend toward greater income inequality has been apparent since the early 1980s - the decade when Gordon Gekko, a fictional character in Oliver Stone's "Wall Street," first extolled the virtues of greed.

History - even fairly recent history - is not America's strong suit. We ignore it at our own peril.

As far back as 1915, when Wisconsin statistician Willford King published the first comprehensive study of income and wealth in the United States, income inequality stoked fears of those concerned for the future of democracy.

Mr. King, whose words are quoted at the top of this editorial, was no socialist. His intention was to demonstrate that all Americans were sharing in the nation's explosion of wealth. But that's not what he found.

Instead, he discovered that the richest 1 percent of Americans controlled a staggering 15 percent of the nation's wealth.

In the end, Mr. King decided that conditions weren't yet ripe for the kind of class warfare that soon would break out in Russia.

As bad as things were here, he found, there were even greater concentrations of wealth and less social mobility in European nations such as Prussia and France.

That's not true anymore. So why aren't more ordinary Americans concerned about the growing chasm between the super rich and everyone else? Perhaps it's because they have no clue how wide it has become.

A new study by Michael Norton and Dan Ariely, professors at Harvard Business School and Duke University, sheds unflattering light on the question. They asked a nationally and politically representative group of 1,000 Americans to estimate how much wealth is controlled by the wealthiest 20 percent of Americans.

Those surveyed guessed that the richest 20 percent of Americans control 59 percent of the nation's wealth.

They were wrong.

The richest 20 percent collect about half the wage income and control about 84 percent of all forms of wealth.

Those surveyed were equally wide of the mark when it comes to the poor. They estimated that the poorest 20 percent have about 3 percent of the wealth. The actual amount is 0.1 percent. The poorest 40 percent of the population holds just 0.3 percent of the nation's wealth; the poorest 60 percent, about 5 percent.

Mr. King would be shocked to learn that the wealthiest 1 percent of Americans today control about a quarter of the nation's riches. That's a 66 percent greater share than they controlled at the close of the Gilded Age - the age of Cornelius Vanderbilt, John D. Rockefeller and the so-called Robber Barons.

Should you care? Some defenders of the status quo argue that even mentioning the vast and growing income gap is a form of "class envy."

But there's a reason Andrew Carnegie and some of his wealthy peers eventually gave away most of their vast fortunes: self-interest. They recognized that having large segments of the population locked in dead-end jobs that barely paid a subsistence wage was a recipe for violent revolution, not vibrant democracy.

Americans used to have to look to Central American "Banana Republics" to see countries where a small elite controlled most of the wealth.